Signs of capitulation

What a rollercoaster day!

S&P opened 50 points up, followed by 80 points down and closed half a point in green. This is a wide range over 130 points within one day.

I think we are at a point of capitulation that nearly everyone has given up any hope of the market. Depressing, déprimant, deprimierend, damuwa, 鬱悶!😩

But believe or not, I see some silver lining now. For the past two weeks or so straight, nearly everyday we saw last minute hard selloffs, even in those days with a big high opening. Very few exceptions. But in the past two days, I noticed that buyers were brave enough to jump in to buy near closing. Today's is especially noticeable, considering those buyers having to face a long weekend of uncertainty and not knowing what may be coming. Maybe I'm reading too much into this but I think this is an important market behavioral change, which is often an early warning sign of a change of the direction to the bullish side. I recalled this was one of the major reasons that triggered me to make a bold call on the last day of 2019 when the market seemed to be ending: A 20% jump in 2019.  You all know what happened in 2019: it indeed jumped higher, actually more than 20%.

I'm buying more today of SPY calls!!

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* The Nasdaq market cap loss in 2022 through the end of April, it has worsened since, was $7.5 trillion compared to a loss in the Covid sell-off of $4.5 trillion, the dot.com collapse of $4.6 trillion, and only $2.5 trillion loss in the great financial crisis of 2007-09. Startling.

* Nearly everyone has degrossed and derisked.   Per Lee Cooperman the S&tP 500 Index can fall 40% from the high if we have a recession. Or consider Dan Loeb, one of the greatest investors ever – in his Third Point first quarter letter to investors he said he was over 75% net long at year end, 41% net long at the end of the first quarter and only 23% net long last week!

* Cash levels are higher than at the height of the pandemic:

* As discussed with Tom Keene and Paul Sweeney yesterday, at the end of April (again it has worsened in May) the 60 (stocks)/40 (bonds) strategy was -12% year to date. The worst performance in the last century and 3x worse than the second worst year (-4%)!

* Last week Investors Intelligence indicated that Bulls fell to just 29.8, the lowest since early 2016 while Bears rose to 40.8, the highest since March 2020.

* The volume in inverse ETFs (at 3.25% of total trading) is at an all-time high.

* Going back to 1957: a decline of 15% or more for the S&P 500 Index has been followed by positive returns in the ensuing 12 months in all but two occasions over the past 65 years.

* As of the end of April, more than 29% of issues on the NYSE had hit a 52-week low. On the Nasdaq, it was more than 33%. There have been only 18 similar days since 1984. The S&P 500 showed a loss a year later once, for -0.2%. Its median return was +32.0%.

* The S&P Oscillator is deeply oversold at -7.13% and the CNN Fear and Greed Indicator is expressing extreme fear (at 9/100).